GM could tie-up with Peugeot-Citroen

General Motor’s European division could be merged with Peugeot-Citroen, according to media reports emerging from France.

The reports say that Vauxhall-Opel would be merged into a new joint venture company with Peugeot-Citroen. GM would own a 30 per cent stake in the joint venture and would inject £6.2 billion (Rs 52402.4 crore) for future product development.

According to Automotive News Europe, this tentative plan is said to have been one of a number of ideas being considered by the management teams of PSA and GM, including selling Opel outright to PSA or GM buying PSA’s automotive division.

At the moment, the alliance between GM Europe and PSA has centred on a range of future models, including replacements for the Insignia and C5/408, a rival for Renault’s budget Dacia line-up, a super-economy supermini and a range of compact SUVs.

Although some are speculating that the French Government might resist the idea of a PSA-GME joint-venture, a 70 percent controlling stake for the French and the fact that this deal may be the only way of saving PSA from collapsing in the medium term could prove the decisive factors.

Both GM Europe and PSA are losing huge amounts of money in the face of the downturn in the European market, a situation driven by their under-utilised factories and the need to discount showroom prices. GM Europe is expected to lose nearly £1 billion (Rs 8452 crore) in 2012, a situation which is affecting the health of GM globally. PSA is said to be burning £161 million (Rs 1360.7 crore) in cash each month.

Merging the four mass-market brands would, eventually, pay dividends by allowing them to build much larger numbers of cars on each platform, saving significant money on product development costs and by running the JV factories at above 85 percent capacity.

The downsides are that more than one factory in any PSA-GM alliance would have to close - a concern for the UK’s Ellesmere Port plant which recently got the contract to produce the 2015 Astra. Also, the merging of most models onto common platforms would take upwards of five years, time that PSA and GME might not have in the current market conditions.

Dividing up the engineering work between France and Germany could prove controversial, although GM’s Russelsheim Engineering HQ could be fully retained by GM because it carries out work on global basis.

At this stage, the merger proposal is still at an outline stage, but if it does clear potential hurdles, it is unlikely to get the green light before the end of the year.

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